Texas SC: No switching to arbitration on eve of trial

By Steve Korris | May 8, 2008

Justice Scott Brister

AUSTIN, Texas (Legal Newsline) - For the first time, the Texas Supreme Court has cancelled an arbitrator's award because the winners carried a lawsuit too far before switching to arbitration.

The high court ruled against Robert and Jane Cull, who chose arbitration four days before a scheduled trial of their lawsuit against builder Perry Homes in Tarrant County.

"The rule that one cannot wait until 'the eve of trial' to request arbitration is not limited to the evening before trial," wrote Justice Scott Brister last week.

"Having gotten what they wanted from the litigation process, they could not switch to arbitration at the last minute like this," he wrote.

"If the litigation conduct here is not enough," Brister wrote, "it is hard to imagine what would be."

Justices Nathan Hecht, Harriet O'Neill, Dale Wainwright and David Medina concurred.

They remanded the case to District Judge Thomas Lowe III, "for a prompt trial."

On eight previous occasions the Supreme Court had upheld arbitration awards against protests that parties switched tracks unfairly.

The Court almost upheld arbitration this time. Four of the nine Justices dissented.

Justice Phil Johnson wrote that defendant Perry Homes failed to prove that the switch prejudiced its defense.

He wrote that at a hearing four days before the trial date, the parties agreed they would not be ready for trial.

He wrote that "a trial setting and actually going to trial are different matters."

Chief Justice Wallace Jefferson and Justice Paul Green joined the dissent, and Justice Don Willett wrote a separate dissent.

Brister scoffed at the minority, writing that "the dissents define prejudice in a way that makes it impossible to prove."

He wrote, "They got extensive discovery under one set of rules and then sought to arbitrate the case under another."

He wrote, "They delayed disposition by switching to arbitration when trial was imminent and arbitration was not."

He wrote, "They got the court to order discovery for them and then limited their opponents' right to appellate review."

He wrote, "Such manipulation of litigation for one party's advantage and another's detriment is precisely the kind of inherent unfairness that constitutes prejudice..."

The Culls bought a house from Perry Homes in 1996, for $233,730. With it they bought a warranty that included an arbitration clause.

They sued Perry Homes and two warranty companies in 2000. The warranty companies requested referral to the American Arbitration Association but the Culls opposed it.

The Culls called the association incompetent and biased, complained about its fees, and argued that enforcement of the arbitration clause would be "nothing short of ridiculous."

More than a year later, they moved to compel arbitration.

Lowe said, "I have a problem with people who have competent counsel who wait 14 months and after all this much effort in the courthouse had taken place, to come in and say that they have not waived that arbitration."

He granted arbitration anyway, finding that it would not prejudice the defendants.

At arbitration, the Culls obtained an award of $800,000, including $200,000 for mental anguish, $200,000 for exemplary damages and $110,000 for attorney fees.

Perry Homes asked Lowe to vacate the award, but Lowe confirmed it.
The 2nd District appeals court in Fort Worth affirmed Lowe's decision in 2005.

The Supreme Court heard oral arguments in March 2007. Stacy Obenhaus represented Perry Homes and Thomas Michel represented the Culls.

While Brister found plenty of prejudice and Johnson found none, O'Neill and Willett didn't feel so certain.

O'Neill wrote, "In some circumstances, a party's invocation of the judicial process may be so substantial that a court could presume the party resisting arbitration has been prejudiced and the right to arbitration has been waived."

She wrote, "In my view, such a presumption may easily be drawn on this record."

Willett wrote, "This is admittedly a close call, and the Court makes the best possible case for going the other way."

He wrote, "I have a difficult time saying the trial court acted arbitrarily or disregarded all guiding standards in not reaching the opposite result."

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